Medical supplies sales to physician offices continue to be a strong business for Henry Schein Inc. It is growing significantly faster than its mainstay animal health and dental businesses, which are being hit hard by foreign currency exchange rates.
The Melville, N.Y.-based company reported earnings of $117.9 million in the second quarter, up just 1.5% from $116.2 million the same period a year ago. Sales rose marginally to $2.63 billion, up just a half percent from $2.62 in second quarter sales last year.
The results would have been much worse had Henry Schein not racked up $470.5 million in sales in its fast-growing physician office supply business, up 16.7% from $403.3 million a year ago.
This business is booming in part because of Henry Schein's partnership with Cardinal Health, which allowed it to handle the company's physician office-focused customers. Schein Chief Financial Officer Steven Paladino said during a conference call that a majority of the Cardinal customers have been transferred to Schein and integration will likely continue through most of the third quarter.
CEO Stanley Bergman said suppliers that want to sell to large group practices and integrated delivery networks need the software and “economies of competency” that Henry Schein brings to the table. “We see even further consolidation in this marketplace with fewer distributors,” Bergman said. “Stronger distributors and distributors who have the software and information intelligence to service these accounts" will survive.
Unfavorable foreign exchange rates took their toll on Henry Schein's traditional dental and animal health distribution businesses during the quarter. Medical sales, which largely originate from North America, were less affected.
Dental sales, traditionally the company's strongest business, declined 3.5% to $1.3 billion. The company attributed this to an 8% decline related to foreign currency exchange that offset 4.5% local growth.
Practice-management software and financial services, with $89.5 million in sales in the second quarter, grew just 0.4%. A 2.9% decline in foreign exchange values negated 3.3% local currency growth.
The company's second-quarter earnings included a $7.2 million restructuring charge. Henry Schein has spent $14.1 million on restructuring this year to rationalize operations and cut costs.
In the conference call, Schein affirmed previous 2015 guidance of adjusted diluted earnings per share of $5.90 to $6, about 8% to 10% higher than last year. That guidance excludes about $0.29 to $0.33 per diluted share in restructuring costs.
Like last quarter, the company announced that it has repurchased common stock, this time buying 267,000 shares at an average price of $140.58 per share, or about $37.5 million. At the close of the quarter, the company had $187 million in remaining authorization for future share repurchases.
